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Age Pension – not all assets are created equal!

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Your age pension entitlement can be affected by your assets, whether you own your home, which is an exempt asset (homeowner), are renting (non-homeowner), and if you are single or a member of a couple. The following table provides an overview of the current asset thresholds and limits as at November 2019.

Assets Test threshold for the full age pension

Status Homeowners – assets must be less than Non-homeowners – assets must be less than
Single $263,250 $473,750
Couple $394,500 $605,000

Assets Test upper limits

Status Homeowners – to receive a part pension, assets must be less than Non-homeowners – to receive a part pension, assets must be less than
Single $574,500 $785,00
Couple $863,500 $1,074,000

 

Here are ten things to consider when you do apply for your age pension.

1. Be aware that the value of your household contents, including your motor vehicle and personal effects, is ’fire sale’ value – not the insured value or the replacement costs. The difference in the two amounts can be substantial and can have a considerable effect on your entitlement. For example, the insured value of your home contents could be $80,000 as opposed to a fire sale value of $10,000. The difference in the two asset valuations could equate to $210 per fortnight in extra age pension just by ensuring that the fire sale valuation is used.

2. Superannuation in accumulation held in a partner’s name who is under pension age is not an asset and not assessable for the purposes of the assets test when calculating your age pension entitlement.

3. Shifting assets between partners is not seen as gifting.

4. Lifetime annuities with a nil residential capital value can be very effective in increasing a person’s entitlement under both the assets test and the income test.

5. A funeral bond up to the value of $13,250 is an exempt asset. For a couple purchasing one each, the total value for an exempt asset is $26,500.

6. Pre-paid funeral expenses and burial plots are also exempt, subject to a couple of conditions – the monies cannot be refunded, there is nothing more to pay and it is a contracted payment.

7. Your home and the – (maximum of 2 hectares) land (curtilage) surrounding your property regardless of the value are exempt from the assets test.

8. Investment properties are an asset which can be reduced by the mortgage secured against the investment property. If the mortgage is secured against your own home, it will not reduce the value of the investment property.

9. Loans to family members (children) paying no interest, which you may not see as an asset, are considered an asset according to the social security legislation. Depending on the amount of money lent, this arrangement can have a detrimental effect on your entitlement, so be very careful before you agree to lending any money to family members.

10. Selling an asset to a family member for less than what it is worth can be viewed as a gift, so again be very careful. Gifting any amounts to your children in excess of $10,000 can have a negative effect on your age pension entitlement.

 

This is certainly not a comprehensive list of considerations and pitfalls, but it is an overview of the more common issues which do arise.

Applying for an age pension when the time comes can be a very daunting proposition.

If you are in doubt about any of the questions or the information you have supplied, make sure you talk to an expert who understands the forms and what is required so that you are able to claim your maximum entitlement.

 

 

Source:  Mark Teale | Centrepoint Alliance

Age Pension – what, when and how much?

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The big question – Does paying taxes while working give you the right to expect an age pension when you decide that you want to retire? – The short answer is no.

What is the age pension?
The age pension is a safety net to support people in retirement who do not have the necessary financial resources to either fully support or partially support themselves.

When can I access the age pension? At what age does a person qualify for an age pension?
For over 100 years, the qualifying age for the age pension was 65. In 2017 the qualifying age increased by six months and will continue to increase by six months every two years until 2024, when the qualifying age will reach 67.

The following table provides a more comprehensive overview.

How do I know if I am entitled to an age pension?
This is a complicated question which is very dependent on a person’s situation. Are you single or a member of a couple, do you own your home or are you renting, how much do you have in assets and what is your income?

The current full age pension is $933.40 per fortnight for a single person or $703.50 per fortnight for each member of a couple. This full age pension is adjusted twice a year, in March and September.

The age pension entitlement is calculated under both an assets test and income test.

Why is the age pension assessed under both tests? If a person’s entitlement is less under the assets test, then what may be payable under the income test, their entitlement is determined by the assets test as this test pays the lower age pension.

In addition to a person’s age and their assets and income, a person applying for the age pension also needs to meet a residency requirement, you must be an Australian resident, and in Australia on the day the claim is lodged. You also need to have been an Australian resident for a continuous period of 10 years or have resided in Australia for a number of periods that total 10 years with at least five of these years in one continuous period.

Australia does have international social security agreements with a number of countries and residence in these countries may count towards your qualifying Australian residence.

As you can see, qualifying for the age pension is not as simple as turning a certain age. It can be complicated, and it would be advisable to talk to an expert to ensure you do receive the right entitlement when you apply.

Source: Mark Teale | Centrepoint Alliance

Age Pension Update – July 2019

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On the 1st of July the age pension asset and income thresholds increased, in addition to the increase in these thresholds the levels at which the deeming rates of interest are applied also increased.

Two weeks after this date the government announced that the deeming interest rates would be reduced. The lower rate dropping from 1.75% to 1% and higher rate falling from 3.25% to 3%.  This drop in deemed interest rates will be effective from the 1st of July but will not be adjusted for age pensioners paid under the income test until the end of September. Any increase in the age pension will be back dated to the 1st of July.

The following tables provide an overview of the changes as well as upper limits from an asset’s and income perspective:

ASSETS TEST

Assets test threshold for full pension:

  For homeowner’s assets must be less than: For non-homeowner’s assets must be less than:
Single $263,250 $473,750
Couple combined $394,500 $605,000

 

Assets test upper limits:

    For homeowner’s
part pension assets must be less than:		 For non-homeowner’s
part pension assets must be less than:
Single   $572,000 $782,500
Couple combined   $860,000 $1,070,500

 

INCOME TEST


Single:

Fortnightly income up to $174 pf Full payment
Reduction in payment over $174 pf 50 cents for each dollar
Upper limit $2,026.40 pf No entitlement

Couple combined:

Fortnightly income up to $308 pf Full payment
Reduction in payment over $308 pf 50 cents for each dollar
Upper Limit $3,100.40 pf No entitlement

For those retirees receiving a part age pension, the benefits of the increase in the thresholds are seen immediately with an increase in the first age pension payment they would receive in July.

However, for the retiree who is not in receipt of an age pension it is not as simple.

The first step for this retiree is to review their current assets or income position against the new upper thresholds, if they are under the new thresholds now is the time to lodge an application for the age pension.

If they are still just above the thresholds, by only a few thousand dollars now is the time to talk to an adviser about the benefits of a gift of up to $10,000 or the purchase of a funeral bond, up to the value of $13.250.  Both strategies will reduce their assets and possibly their income under either the income or assets test.

The minimum pension that can be paid is not $1 per fortnight but $36.70 per fortnight for a single age pensioner or $55.40 per fortnight combined for a couple.

 

Source:  Mark Teale | Centrepoint Alliance

Is Transition to Retirement Still Viable?

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Superannuation law was amended in 2005 to allow people to access their super from preservation age, currently 55, but progressively increasing to 60, without having to retire. It became affectionately known as ‘transition to retirement’ but it actually has nothing to do with retiring.

Once a person reaches their preservation age, they are able to access their super even though they might continue to work on a part-time or even a full-time basis.

There are some restrictions that apply, including:

1. Superannuation can only be accessed as an income stream or pension. That is, the amount of super being drawn cannot be paid out as a lump sum, however the annual income may be paid as a single annual instalment. The investment product that pays the pension is often referred to as a transition to retirement pension (TTR), or transition to retirement income stream (TRIS).

2. The income that may be drawn each year is based on the TRIS account balance. The minimum income that can be drawn is 4% of the account balance, while the maximum is 10% of the account balance.

3. During the life of a TRIS, lump sums cannot be withdrawn from the account, apart from the annualised annual income payment.

In the past, one of the attractions of a TRIS was that the investment earnings achieved by the super fund on the investments supporting the TRIS were exempt from tax at the super fund level. Because the super fund did not have to pay tax, this translated to a higher investment return for the investor.

Unfortunately, this concession was withdrawn for TRISs from 1 July 2017. They are now taxed on the same basis as a superannuation accumulation account. That is, fund earnings are taxed at a rate of 15%, with a 331/3% discount available for capital gains.

Once a person reaches the age of 60, the income they personally receive from their TRIS is tax free in their hands, even though their super fund is still paying tax on the underlying investment earnings.

One of the very popular strategies adopted in the past was for people to commence drawing income from their TRIS and simply enter into a salary sacrifice arrangement with their employer. It was a highly tax advantaged strategy, particularly for high income earners when the superannuation contribution limits were much higher than they are today.

However, not all is lost.

Even though a TRIS does not offer the same tax advantages as it did in the past, they may still play an important part in personal financial planning.

Drawing income from TRIS, particularly if age over 60, may still provide some tax advantages when coupled with a salary sacrifice arrangement or making personal tax-deductible contributions. The general concept of transition to retirement is still relevant where an individual needs to supplement their existing income. This may occur when unexpected expenses arise, a job is lost, or a person chooses to reduce their working hours in order to ‘transition into retirement’ – the original intention for introducing transition to retirement.

Of course, transition to retirement has a downside, the earlier we start drawing down on our super, the greater the risk that we will outlive it.

 

Source: Peter Kelly | Centrepoint Alliance

Is it time to apply for the aged pension? Pt. 2

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We posted Part 1 of this topic on 25th October, which looked at the complexities and frustration of the application process.

The question has been asked regarding when should a person look at whether they would qualify for an age pension?

For many people, applying for the age pension is not something they think about until they are close to the qualifying age.

I believe that rather than waiting 13 weeks before you reach the necessary age, you should be looking at your situation five years before your qualifying age.

The qualifying age, depends on your date of birth and can vary between 65 and 67. As an example, a person born on 20 August 1956, would qualify at the age of 66 and a half. Those born after 1 January 1957, will need to wait until they turn 67.

So, for all those people who turn 62 after 1 January 2019, next year is the year you should review your circumstances and determine whether you may qualify for an age pension.

Why five years you may ask? For those people who see the age pension as a very important component of their retirement income, five years is an extremely important period.

As an example, consider the following situation;
The husband is turning 62 and his wife is 60. They own their own home, a couple of cars, have $85,000 in bank accounts and term deposits. Due to of a lifetime of work, they currently have a total of $650,000 in superannuation. Over the next five years through the strategy of salary sacrifice and investment growth, their super is expected to grow to around $800,000.

Their assets assessed for age pension purposes in five years could be close to $900,000, including their cars household contents and cash. Based on today’s upper asset threshold for a home-owner couple, which is $848,000, they would not qualify for an age pension. However, given the annual adjustment in the age pension and the thresholds at the age of 67 he may qualify for a small pension.

Of course, this all sounds very reasonable and based on their financial assets they should be able to achieve the comfortable lifestyle that they hope for when he retires at the age of 67.

The missing factors in this scenario are their children!

Their children are adults, they are married, have children of their own, but are struggling financially.

The couple have promised that when they retire, they will help them out by gifting them $100,000 each, three children a total of $300,000.

The downside to this plan is that in five years when they gift $300,000 to their children, and the husband applies for his age pension, Centrelink will maintain a gift of $290,000 for five years as an asset and deem income on this $290,000 when assessing his entitlement to an age pension.

This process will also affect her age pension entitlement when she applies two years later, on turning 67.

As this couple had not reviewed their situation in respect of their plans to gift money to their children, or the age pension legislation, they will find themselves in a less than comfortable position as their age pension entitlement is significantly less than what they had factored into their budget.

It is extremely difficult to ask for the money back once you have gifted the funds to children.

Believe it or not this situation occurs on a regular basis. The number of people who gift money to their children, for very good reasons, and then expect their age pension to increase to compensate for the funds that they have gifted, is a lot more common than we think.

Now, I am not saying that what this couple intends to do is wrong. What I am saying is that they need to review their position and make some decisions now.

If they do not have the funds to gift to their children at this moment and they still plan on giving $300,000 to the children in five years when they retire, they are at least aware of the consequences and are able to make plans.

Always remember to talk to someone and for the purposes of any age pension entitlement, do not leave it until just before reaching age pension age. If you do plan on gifting money to your children, make sure you do so five years before you turn age pension age, because, the deprivation rules don’t apply to the money or things you have given away more than five years previously.

 

Source: Mark Teale | Centrepoint Alliance